Inheritance, loans to children and other confusion

Juleszoemay

Hello,

This is fairly complicated, and can I start off by saying that I’m eternally grateful for being in this fortunate position. However, I’m concerned that I’m being taken for a ride by my brother. And that when my parents pass away I’m going to be taken for a mug. 

My brother and I have both a been able to use our parents as a bank, I currently owe £100k and am paying it back at £500 a month plus 1.5% interest. My brother owes £400k and is paying it back at a similar rate, although his payments are sporadic, and in cash. Mine is set up by standing order. At this rate my loan will be repaid in 12 years time, his in about 100. 

The other string to this is that my parents bought a small 2 bed house £125k to rent out as an investment in 2010, at which time my brother did not own a property so it’s in his name, he collected the rent, took out the income tax and paid my parents.  Roll forward to now, and I’m told that the house is my brothers and that it’s just part of his borrowing, it’s not the same because it’s a self funding hedge fund in effect! But I’m supposed to be ok with this. And my brother (the accountant) has managed to bamboozle my parents into thinking it’s fair? 

So my first question relates to the non documented debt, will I be worse off when they pass because even if my brother actually sticks to his morals and works out the difference between what each of use owes in theory, and pays me the difference? As opposed to it being dealt with as part of the estate and it being taken as IHT? 

The other side is the investment property because that’s now worth £200k and he’s not had to earn any money to pay for it, so should the difference between our debts be taken at the purchase value or the value at probate? Of course as it’s in his name it won’t be taken into probate. 

I just feel as though if he could likely pull a fast one with regard to that house, he can just as easily declare no knowledge of the £400k debt and write it off, taking half the estate. 

My parents are in good health, and I don’t see this as an immediate problem, but I need to know what to do to make this right while they’re alive. Their whole estate ignoring debt is probably around £1m. 

Any advice would be welcome. 

Thanks 

Keep_pedalling

If you parents want to avoid leaving a financial mess behind when they die then they need to seek professional advice asap. It sounds like your brother is both the legal and beneficial owner of the investment property so that is a gift not a loan.

The cash loans need to be formalised and you parents need wills to reflect what has been loaned and gifted. It might also be advisable to appoint professional executors to avoid a sibling conflict.

The other issue is IHT. If their net worth (including the loans) exceeds £1M then they should be considering evening out things by gifting which also has the benefit of potentially reducing IHT. 

elsien

If your parents have decided that the house is your brother’s outside of any other loans, that’s their choice to make. Nothing you can do about it unless your brother agrees. 

Juleszoemay

elsien said:

If your parents have decided that the house is your brother’s outside of any other loans, that’s their choice to make. Nothing you can do about it unless your brother agrees. 

I understand. But the calculations on the ‘loan book’ he keeps includes that initial borrowing for the investment property, which until now I was not aware was borrowed because I thought it was my parents. Meaning we would both benefit from it. 

Juleszoemay

Keep_pedalling said:

If you parents want to avoid leaving a financial mess behind when they die then they need to seek professional advice asap. It sounds like your brother is both the legal and beneficial owner of the investment property so that is a gift not a loan.

The cash loans need to be formalised and you parents need wills to reflect what has been loaned and gifted. It might also be advisable to appoint professional executors to avoid a sibling conflict.

The other issue is IHT. If their net worth (including the loans) exceeds £1M then they should be considering evening out things by gifting which also has the benefit of potentially reducing IHT. 

If it was a gift then it would’ve be on the loan tally though would it and attracting interest monthly along with the rest of the money he’s borrowed for the house he lives in. So is not a self funding hedge fund. 

Juleszoemay

Wouldn’t* that should read  

kazwookie

Do they have WILLS?

If not they need some asap

Juleszoemay

Yes, but they’re simple, leave to each other, then 50/50 to us two children. There are no loans mentioned. 

Juleszoemay

I think they aren’t mentioned because of IHT liability. At the moment all the lending was given over 7 years ago so whilst I’m paying mine back with a paper trail, my brother is not. It seems he’s more savvy than I. 

SeniorSam

Jules, I understand your concern, but unfortunately, the arrangements your parents have made is entirely up to them. Should they die sooner rather than later, they will leave a financial mess to be sorted out and a great deal of inheritance tax to be dealt with before their beneficiaries can inherit their wealth.

Have your parents made their Wills and if so are you privy to the contents as to executors, Trusts to be effected and beneficiaries. If they have made Wills, then they could be changed or altered as they wish.

Regarding the gifts and loans already made, the arrangements do seem to be very vague as far as financial planning is concerned as as said, will leave considerable problems unless they are sorted out. They should all have been carefully documented and that is something that both you and your brother should have insisted on, not only for your own protection, but for your parents understanding that their sons are in agreement and such matters are mutually agreed.

Families can and do fall out  over financial matters and the longer this is uncorrected, the more difficulties there will be.

Do try and have a family meeting with your parents and your brother together and come to an agreement that you are all happy with. The paperwork to sort this out once agreement has been reached is not to difficult, but impress on your parents that if nothing is done, then they will be driving brothers apart, which no parent would wish for.

If you have questions, please ask, but do take action as soon as you can.

Brie

As I understand it if your parents have wills say 50/50 split and there's no documentation of what has been given or loaned then it's very possible that you will get half of what your parents have.  So your loan may not be taken into account.  If the house is in your brother's name then it's also very possible that won't be taken into account.  Potentially this might be resolved more into your favour if you make a big stink about it and enlist the HMRC to chase after a proper audit trail.  Which is likely to cost lots and likely you'll be no further ahead.

I have a brother similar to you but fortunately he has improved a bit over the last couple of years.  Miracles do happen it seems.